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Warwick Township Water and Sewer Authority (“Owner”) hired Carroll Engineering Corporation (“Engineer”) to administer the construction of, and Klipper Construction Associates, Inc. (“Contractor”) to construct, upgrades to Owner’s wastewater treatment plant (“the Project”). When Contractor’s work was significantly delayed by subsurface rock conditions, it requested an extension of its contract deadlines, but Owner, on Engineer’s recommendation, gave Contractor only three weeks of extensions. After Contractor completed the Project beyond its contract deadlines, Engineer recommended that Owner withhold as liquidated damages for delay the contract balance Owner owed to Contractor.

Contractor sued Owner and Engineer for the contract balance withheld by Owner and for consequential damages. Owner and Engineer both asserted cross-claims against the other for common law indemnity. Following a jury verdict and post-trial motions, the trial court entered judgment in Contractor’s favor for $800,341.43 on Contractor’s claim for breach of contract. The trial court also entered a judgment in Engineer’s favor on Owner’s cross-claim for indemnity (notwithstanding a jury finding that the Owner had not engaged in conduct independent of the Engineer that damaged the Contractor) and denied Contractor’s post-trial request for a penalty under the Prompt Pay Act (notwithstanding a jury finding that the withholding of payment had been in bad faith). Owner and Contractor appealed.

The Commonwealth Court held that the trial court erred in failing to award a penalty under the Prompt Pay Act and that Owner was entitled to indemnity on the evidence presented. The court found that under Section 3935 of the Prompt Pay Act, a penalty award is mandatory where, as in the case before it, the jury finds that the government withheld contract payments in bad faith.

The court also found that Owner’s indemnity claim was supported by evidence adduced at trial, specifically: (i) Engineer possessed soil boring reports of the rock conditions at the Project that it did not give to Contractor when Contractor bid the job; (ii) Owner both refused Contractor’s requests for further extension of its deadlines and withheld the contract balance owed to Contractor based on Engineer’s recommendations; and (iii) given the principal-agent relationship between Owner and Engineer on the Project, Engineer could be primarily liable and Owner could be passively liable for Owner’s failure to pay Contractor. The court thus held that Owner could recover from Engineer the total amount of the consequential damages and the all interest, penalties and attorney fees awarded Prompt Payment Act to Contractor.

To view the full text of the Superior Court decision, courtesy of Lexis ®, click here.

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